Why not non traded REIT such as yield tree?

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vu8
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Why not non traded REIT such as yield tree?

Post by vu8 » Wed May 22, 2019 1:24 pm

Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos. I know that people would criticize non Traded REIT as illiquid, but why do you even need liquidity if it is a good long term investment?

John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel". If you don't need the money, why not invest in non traded reit such as Yield street and get some good stable 8-12% return?

Yieldstreet website says "Asset-based investing. 8-15% target returns.
1-3 year durations."

I don't have any money in reit or non traded reit. I just wanna know what's so bad about them and why does liquidity matter if your investment timeline is infinite?

Dottie57
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Re: Why not non traded REIT such as yield tree?

Post by Dottie57 » Wed May 22, 2019 1:29 pm

Not liquid= hard to get your money out.

Does it matter if something does well if you can’t cash it in when you want?

I

Silk McCue
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Re: Why not non traded REIT such as yield tree?

Post by Silk McCue » Wed May 22, 2019 1:31 pm

I suggest you type "non traded reit" in the search box. Best place to look for information on questions that have been asked numerous times in the past and with plenty of feedback provided.

Cheers

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Re: Why not non traded REIT such as yield tree?

Post by Jags4186 » Wed May 22, 2019 1:31 pm

“8-15% target returns”

What happens when it doesn’t make target and then they won’t give you back your money?

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Re: Why not non traded REIT such as yield tree?

Post by ThrustVectoring » Wed May 22, 2019 1:54 pm

vu8 wrote:
Wed May 22, 2019 1:24 pm
Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos.
As a general rule, any investment that gets aggressively pushed at you through paid channels (salespeople, advertising, commission-based "advisers", etc) is a poor choice to invest in. Before fees, the average investment is as good as investing in a low-cost index fund that invests in pretty much everything. The paid promotion gets paid out of your money in the end, though, so you can pretty well guarantee that you'll wind up paying more in fees than you need to.

In short - these ads cost money, and by investing based off them you end up paying for them. I'm sure these people believe in their own sales pitch, but on average investing in this stuff will just generate management and other profits for the people advertising it to you. Sometimes it'll do well, sometimes it will do poorly, but the costs are going to rack up regardless.
Current portfolio: 60% VTI / 40% VXUS

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Re: Why not non traded REIT such as yield tree?

Post by Dave55 » Wed May 22, 2019 1:59 pm

delete
Last edited by Dave55 on Wed May 22, 2019 2:16 pm, edited 1 time in total.

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Re: Why not non traded REIT such as yield tree?

Post by jminv » Wed May 22, 2019 2:10 pm

vu8 wrote:
Wed May 22, 2019 1:24 pm
Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos. I know that people would criticize non Traded REIT as illiquid, but why do you even need liquidity if it is a good long term investment?

John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel". If you don't need the money, why not invest in non traded reit such as Yield street and get some good stable 8-12% return?

Yieldstreet website says "Asset-based investing. 8-15% target returns.
1-3 year durations."

I don't have any money in reit or non traded reit. I just wanna know what's so bad about them and why does liquidity matter if your investment timeline is infinite?
There are publicly traded REITs you could invest in if you want to invest in REITs.

In any case, yield street isn't a nontraded reit company. They source funds for art dealers, ship breakers, home/apartment flippers, warehouse conversions, cash out, etc. You are lending them your money. Nice to hear it's a 'good stable 8-12% return' which you later say is a 8-15% target. Anybody can make a target. The returns aren't stable, either, because they are normally tied to sales, for example, you won't get any money on the art deals until the dealer sells a painting so it's lumpy. It's event based. They've also had defaults before and if you look at biggerpockets there's a generally unfavorable review of them. Communication on defaults and delayed payments is poor.

One of their latest deals was to finance the purchase of three ships for scrap in the west, send them to India, and break them on the beaches there. There was a long time between purchase and scrapping too, so there was risk in the movement of steel prices. That's not how they phrased it, though (ship breaking and time factor). In another recent deal I looked at, they had what seemed to be an attractive art portfolio being used to raise funds. A closer look, however, showed that it wasn't really diversified with one painting taking up a large share of the total value and all of the paintings being valued at multiples above the average sale price for the artist. Repayment was event based (like most of their deals) so in order to get your money back, you need for that one painting to sell at a high price quickly and the price of the others to hold up.

I also don't generally invest in something because it's being advertised heavily. In the case here that can mean that the yield you end up receiving is a mispriced risk. You see this with all the peer to peer lenders eventually. With yieldstreet, they have relatively few offerings that sell out quickly. From what I've looked at there in the past, the yields seem a little low and the fees a little high.

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Re: Why not non traded REIT such as yield tree?

Post by mhadden1 » Wed May 22, 2019 2:59 pm

Dottie57 wrote:
Wed May 22, 2019 1:29 pm
Not liquid= hard to get your money out.

Does it matter if something does well if you can’t cash it in when you want?

I
Nailed it. Well played. :happy

My alternative - "Because it's non traded"
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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Re: Why not non traded REIT such as yield tree?

Post by skepticalobserver » Wed May 22, 2019 3:01 pm

vu8 wrote:
Wed May 22, 2019 1:24 pm
Yieldstreet website says "Asset-based investing. 8-15% target returns.
How much of that is yield and much of it is return of principle (as in, getting your own money back)? Often times advertised "payout" rates are confused by prospects with "yield."
Last edited by skepticalobserver on Wed May 22, 2019 5:01 pm, edited 2 times in total.

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Re: Why not non traded REIT such as yield tree?

Post by abuss368 » Wed May 22, 2019 7:51 pm

If you are interested in REITs for your portfolio, it is hard to beat Vanguard U.S. REIT Index and Vanguard International REIT/RE Index.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why not non traded REIT such as yield tree?

Post by Retired1809 » Wed May 22, 2019 7:59 pm

I wouldn't touch non traded REITs with a ten-foot pole no matter what. Especially if they promise or hint of high returns. It's fools' gold.

The business of non traded REITs has often been the terrain of unscrupulous operators. In my opinion, you would be wise to stick with public REITs or quality index funds of REITs (for example Vanguard).

The expenses of non-traded REIT shares are often much higher than those of reputable public REITs. Stick with quality names, not the ones that have to advertise on talk radio programs.

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Re: Why not non traded REIT such as yield tree?

Post by JoMoney » Wed May 22, 2019 8:12 pm

vu8 wrote:
Wed May 22, 2019 1:24 pm
... John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel"...
I believe you have the quote wrong. SEE:
viewtopic.php?f=10&t=93050&p=1340094
https://www.etf.com/publications/journa ... nopaging=1
... That's the way I feel, as you probably know, about international stocks. If they're efficiently priced, I just don't see why they would give you a higher return in the future than they're giving you today.

And let me say this about a better diversifier: "Better diversification" is the last refuge of the scoundrel. What were we talking about five years ago as a good diversifier? Well, I can't remember, but it wasn't gold. And when gold does well, as it certainly has, then someone says it's a great diversifier. And when international bonds get a little ahead of U.S. bonds—not before, but after—then someone says it's a great diversifier. Anything that's done well recently is considered a great diversifier...
Liquidity is only un-important if you don't care about getting your money back.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why not non traded REIT such as yield tree?

Post by sschoe2 » Wed May 22, 2019 8:23 pm

I remember when Bob Brinker was on the radio investment vehicles on his don't touch with a 10 foot pole list were annuities, precious metal coins, whole life, and nontraded REITs.

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Re: Why not non traded REIT such as yield tree?

Post by z3r0c00l » Wed May 22, 2019 9:28 pm

Why do they need your money in the first place if it is such a good business? They would have banks and VC and hedge funds all over them.

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Re: Why not non traded REIT such as yield tree?

Post by softwaregeek » Wed May 22, 2019 10:33 pm

I have a general rule of thumb that any investment that needs to be advertised is a loser.

Why would they pay you 15 percent when they could issue bonds for 4 percent and make the money themselves?

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Re: Why not non traded REIT such as yield tree?

Post by columbia » Thu May 23, 2019 6:33 am

softwaregeek wrote:
Wed May 22, 2019 10:33 pm
I have a general rule of thumb that any investment that needs to be advertised is a loser.

Why would they pay you 15 percent when they could issue bonds for 4 percent and make the money themselves?

Which reminds me of those companies hawking physical gold:

If it’s needed for the coming crisis, why are they willing to take your currency for it?

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Re: Why not non traded REIT such as yield tree?

Post by magicrat » Thu May 23, 2019 7:50 am

If it's a good long-term investment, why would they need to be "blasting advertisements on my computers and iphones and youtube videos"??

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Re: Why not non traded REIT such as yield tree?

Post by Stinky » Thu May 23, 2019 8:13 am

High returns are generally accompanied by high risk.

‘nuff said.
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Re: Why not non traded REIT such as yield tree?

Post by wolf359 » Thu May 23, 2019 8:34 am

JoMoney wrote:
Wed May 22, 2019 8:12 pm
vu8 wrote:
Wed May 22, 2019 1:24 pm
... John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel"...
I believe you have the quote wrong. SEE:
viewtopic.php?f=10&t=93050&p=1340094
https://www.etf.com/publications/journa ... nopaging=1
... That's the way I feel, as you probably know, about international stocks. If they're efficiently priced, I just don't see why they would give you a higher return in the future than they're giving you today.

And let me say this about a better diversifier: "Better diversification" is the last refuge of the scoundrel. What were we talking about five years ago as a good diversifier? Well, I can't remember, but it wasn't gold. And when gold does well, as it certainly has, then someone says it's a great diversifier. And when international bonds get a little ahead of U.S. bonds—not before, but after—then someone says it's a great diversifier. Anything that's done well recently is considered a great diversifier...
Liquidity is only un-important if you don't care about getting your money back.
The quote is correct. It turns out John Bogle really liked that "Patriotism is the last refuge of the scoundrel" quote and re-stated it on multiple topics.

Reference: Motley Fool article https://www.fool.com/investing/mutual-f ... e-sco.aspx
Gardner: Is there anything good about trading, in your opinion?
Bogle: Well, yes. I think the market needs a certain amount of liquidity, and I accept that. But how much liquidity do we need? Do we really need the market to turn over 250% a year? I grew up in this business. There wasn't a liquidity problem, and the turnover was 25% a year.
I've been known to say -- you'll like this expression -- copying Samuel Johnson on what he said about patriotism: "Liquidity is the last refuge of the scoundrel."
The context of the quote doesn't apply. John Bogle was talking about the massive turnover of stocks and excessive trading being a bad thing, and that it was being justified by calling it "liquidity." He's not saying liquidity is bad. He's saying that bad actors are using liquidity to justify their actions.

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Re: Why not non traded REIT such as yield tree?

Post by wolf359 » Thu May 23, 2019 9:01 am

vu8 wrote:
Wed May 22, 2019 1:24 pm
Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos. I know that people would criticize non Traded REIT as illiquid, but why do you even need liquidity if it is a good long term investment?

John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel". If you don't need the money, why not invest in non traded reit such as Yield street and get some good stable 8-12% return?

Yieldstreet website says "Asset-based investing. 8-15% target returns.
1-3 year durations."

I don't have any money in reit or non traded reit. I just wanna know what's so bad about them and why does liquidity matter if your investment timeline is infinite?
Quick evaluation of Yield Street as an investment:

Initial screen:
- Does not appear to be a scam. (Of course, Madoff Securities didn't appear to be a scam, either).

- Worst case projection: if things go south, it is possible to lose all assets committed. Does not generate additional liability (all you lose is what you put up.)

- Requires you to be an accredited investor. Some of the normal SEC protections don't apply (you're considered able to evaluate the risks yourself.) Not a problem if you know how evaluate real estate deals. If you don't, steer away. If you are not an accredited investor, you cannot invest.

- Illiquid: Ties up assets for 1-3 years. No secondary market. If loan defaults, Yield Street may take time to return payment due to legal actions they would take.

- Costs: Varies by project. Looks complicated. Ballpark is in the 2% per year range.

- Correlation: Not correlated to the stock market. Indirectly correlated to the real estate market. Yields are dependent on the risk of the project. If the real estate market collapses, the value of the collateral collapses.

- Diversification: Individual deals are not diversified. You make the call. You get to invest as little as $5,000 in one deal, so with sufficient funds you can diversify between multiple deals yourself.

- Tax considerations: This is considered a loan. Payments are taxable as ordinary income. Can be funded in a Self-directed IRA (which requires additional fees to set up.)

Conclusion: If you don't need the income, high fees, the headache, or the risks, stay away. You can do just fine without it.

This might be a way to diversify an income stream after retirement, but you need to make sure you know how to evaluate a real estate deal. Fees are high.

This is not a REIT. (A REIT is a different type of financial structure entirely.) I'd categorize this as a platform to conduct hard money loans with smaller dollar amounts. The loans are secured by assets, but they're secured by Yield Street, not you. Yields are paid quarterly or monthly.

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Re: Why not non traded REIT such as yield tree?

Post by nisiprius » Thu May 23, 2019 12:32 pm

1. It is disturbing that the original poster, vu8, got the impression that YieldStreet is a REIT when as wolf359 and jminv explain above, it isn't.

We saw something similar with another poster curious about a company named FundRise. In a way it was even worse because FundRise actually calls some of its products "eREITs."

2. Non-traded REITs are bad for several reasons.

a) It is difficult to assess the risk, since they have no secondary market. That means the the value stated for them is just an estimate or an appraisal. This makes them look more stable than they are. Worse, it means that you may not get much warning if the REIT is in trouble. With anything traded on a secondary market, you have many eyes watching it, and any problems will show up quickly in the market value. The non-traded REIT may show a deceptive stable "value," and may appear to be paying out dividends regularly, but may be actually paying out those dividends by return of principal or even borrowed money, not out of real investment earnings.

b) Worse yet, since they are non-traded, if you become aware that the REIT is in trouble, there's practically nothing you can do about it. You can't sell it on the market. And when the holding period is up, you may find that instead of getting your expected principal back, you may be in a tangled maze of legal notices and tender offers.

c) Because they are illiquid, you are taking on considerable risk, for which you should be compensated. They should be paying you more. The question is: is what they are paying you enough to compensate for the illiquidity, as well as the considerable risks?

d) They are subject to many conflicts of interest, one being the high fees they earn for advisors. One law firm notes:
The dealer-manager is often paid excessive commissions for selling shares, as high as 10% of the share price. These rates are substantially higher than on mutual funds and ETFs, which have commission levels of typically 2-3%. These extraordinarily high fees incentivize dealer-managers to sell as many shares as possible, regardless of the suitability of the investment for an individual’s financial objectives. This could lead to the targeting of unsophisticated investors in particular.
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Re: Why not non traded REIT such as yield tree?

Post by unclescrooge » Thu May 23, 2019 9:56 pm

JoMoney wrote:
Wed May 22, 2019 8:12 pm
Liquidity is only un-important if you don't care about getting your money back.
👍
Well said.

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Re: Why not non traded REIT such as yield tree?

Post by nedsaid » Thu May 23, 2019 10:14 pm

vu8 wrote:
Wed May 22, 2019 1:24 pm
Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos. I know that people would criticize non Traded REIT as illiquid, but why do you even need liquidity if it is a good long term investment?

John Bogle once quoted somebody that "liquidity is the last refuge of a scoundrel". If you don't need the money, why not invest in non traded reit such as Yield street and get some good stable 8-12% return?

Yieldstreet website says "Asset-based investing. 8-15% target returns.
1-3 year durations."

I don't have any money in reit or non traded reit. I just wanna know what's so bad about them and why does liquidity matter if your investment timeline is infinite?
Non-traded REITs can be a good investment, I suppose, but others have pointed out that heavily advertised and promoted investment products often just don't work out too well for retail investors. For one thing, if it is such a great investment, why do they have to advertise so heavily to get people to buy it? Wouldn't the rich be scooping up the best deals? Would retail investors buying these be getting the left-overs that other private investment trusts have passed on? How the heck do you do the due diligence on these things? You have to also consider that lots of folks including the investment banks, the firms selling these, and their investment advisors would all get their cut. My guess is that the "cut" is about 15%. So you are buying at about 85 cents on the dollar. You get a private valuation, somebody estimates Net Asset Value, but wouldn't you rather have markets do that? It seems you have to trust the due diligence of an Advisor and the investment firm.

If non-traded REITs were so great, wouldn't Fuduciary firms like Buckingham be offering these? The illiquidity of these would make them a good Alternative investment. My guess is that Public REITs are better investments than Private REITs for the retail investor.

In theory, you may not "need" the liquidity because you have a very long time horizon. But as the great T-Shirt philosophy says S(tuff) Happens. You may not need the money today but you might need it tomorrow. Lots of uncertaintly in life.

My foggy memory remembers good old Global Health, a closed end mutual fund run by John Kaweske, a legendary fund manager at Invesco. I bought it as an IPO. I was assured that there were no fees, they were paid by the Investment Bank. Funny thing, first Kaweske was found to be front running trades he was placing for his mutual funds with personal money. Invesco sacked him and of course he was no longer manager for Global Health. The other funny thing was that it had an IPO price of $15 but when it traded it seemed like it traded at $13.50 to $14, that was the hidden commission. The fund floundered after Kaweske's departure and I later sold it at a loss. I called it "Global Disaster." Not doing that again. But Global Health was publicly traded. Can't imagine what would happen with a non-traded REIT.
A fool and his money are good for business.

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Re: Why not non traded REIT such as yield tree?

Post by unclescrooge » Thu May 23, 2019 10:32 pm

nisiprius wrote:
Thu May 23, 2019 12:32 pm
1. It is disturbing that the original poster, vu8, got the impression that YieldStreet is a REIT when as wolf359 and jminv explain above, it isn't.

We saw something similar with another poster curious about a company named FundRise. In a way it was even worse because FundRise actually calls some of its products "eREITs."

2. Non-traded REITs are bad for several reasons.

a) It is difficult to assess the risk, since they have no secondary market. That means the the value stated for them is just an estimate or an appraisal. This makes them look more stable than they are. Worse, it means that you may not get much warning if the REIT is in trouble. With anything traded on a secondary market, you have many eyes watching it, and any problems will show up quickly in the market value. The non-traded REIT may show a deceptive stable "value," and may appear to be paying out dividends regularly, but may be actually paying out those dividends by return of principal or even borrowed money, not out of real investment earnings.

b) Worse yet, since they are non-traded, if you become aware that the REIT is in trouble, there's practically nothing you can do about it. You can't sell it on the market. And when the holding period is up, you may find that instead of getting your expected principal back, you may be in a tangled maze of legal notices and tender offers.

c) Because they are illiquid, you are taking on considerable risk, for which you should be compensated. They should be paying you more. The question is: is what they are paying you enough to compensate for the illiquidity, as well as the considerable risks?

d) They are subject to many conflicts of interest, one being the high fees they earn for advisors. One law firm notes:
The dealer-manager is often paid excessive commissions for selling shares, as high as 10% of the share price. These rates are substantially higher than on mutual funds and ETFs, which have commission levels of typically 2-3%. These extraordinarily high fees incentivize dealer-managers to sell as many shares as possible, regardless of the suitability of the investment for an individual’s financial objectives. This could lead to the targeting of unsophisticated investors in particular.
For a lot of the illiquid syndication deals I've seen (which are basically non public real estate investments), the upfront costs run 12-20%.

If they're lower than that, then the back end fee is 30%.

A lot is them are promoted by young inexperienced investors who haven't seen the down cycle in real estate.

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Re: Why not non traded REIT such as yield tree?

Post by willthrill81 » Thu May 23, 2019 10:35 pm

mhadden1 wrote:
Wed May 22, 2019 2:59 pm
Dottie57 wrote:
Wed May 22, 2019 1:29 pm
Not liquid= hard to get your money out.

Does it matter if something does well if you can’t cash it in when you want?

I
Nailed it. Well played. :happy

My alternative - "Because it's non traded"
Image
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Re: Why not non traded REIT such as yield tree?

Post by softwaregeek » Thu May 23, 2019 10:55 pm

I looked at cadre, which I thought was better. I thought the assets were good but the fees ate you alive. I passed.

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